Urban Development Grants: Seed Money Or The Pits?

CHARLESTON, S.C. — Nancy Sottile, who owns a restaurant here with her husband, and Roger Morrow, who is a carpenter, don`t know each other but they have at least three things in common.

One is that they both like Ronald Reagan. Another is they both are benefiting from a program that Reagan wants to eliminate. The third is that neither of them knew there was a program they were benefiting from.

Morrow, who lives in Spartenburg, is making $7.50 an hour working on an $89 million project known as Charleston Place, which eventually will include a new hotel, a convention center and shops. ``This is a good job,`` he said. ``I like these projects.``

Sottile and her husband opened Sweet Lydia Annes Dining Room about a year ago because, she said, ``it seemed like a good opportunity with all the new building going on and all the activity in downtown Charleston.``

What neither Sottile nor Morrow knew was that all the activity and the construction project came about because of something called the Urban Development Action Grant, known as UDAG in bureaucratese.

UDAG has been absolutely essential to Charleston`s vigorous revival, according to Mayor Joseph Riley. But according to the Reagan administration, UDAG is ``an expensive, taxpayer-supported shell game`` that ought to be eliminated.

The dispute rages on in Congress. The Republican-controlled Senate has voted to phase out UDAG over two years while the House Budget Committee, controlled by Democrats, wants to keep the program alive, though the panel cut its $440 million budget authority for fiscal 1986 by 10 percent.

Along with most other mayors, including many Republicans, Riley will make a major effort to get the House to keep the program alive. To succeed, they will have to overcome UDAG`s relative obscurity, which was evident in the lack of knowledge about the program even by people who benefit from it, such as Sottile and Morrow.

Here as elsewhere, the signs outside new construction sites that UDAG finances display in big letters the names of contractors, developers and architects working on the project and benefiting from it. The information that it all depends on a federal grant is not exactly in fine print, but neither is it very prominent.

There is a good reason for this. UDAG doesn`t actually finance these projects. It just provides what is essentially seed money that makes the projects possible.

``Each UDAG dollar leverages six private dollars,`` said Laura DeKoven Waxman of the U.S. Conference of Mayors. In a recent survey, the conference reported that in 70 cities, $728 million in UDAG money over the last few years had led to $3.6 billion of private investment that financed projects providing 102,000 jobs.

The administration does not see it that way. UDAG grants ``do not add to national investment or job creation,`` says a statement from the Office of Management and Budget. Instead the grants ``politically reshuffle the national economic pie.``

Futhermore, the administration argues, most UDAG subsidized housing is for middle- and upper-income people, not the poor. Many of the direct beneficiaries are successful corporations, entrepreneurs and developers rather than poor inner-city residents.

The administration is right, at least as far as it goes, as even some of UDAG`s supporters concede. Sottile and Morrow were not poor even before UDAG came to Charleston, and neither was the hotel that runs the Omni hotel chain, which will run the 450-room hotel that Morrow is helping to build.

Not even Mayor Riley argues that without UDAG the private money it inspires would not be invested somewhere. The problem, he said, is that the somewhere would not be in the inner cities.

``Left to itself, economic expansion will occur generally, and in a higher degree outside the city limits,`` Riley said, noting that over the last 20 years an imbalance had grown, with the many businesses and the tax revenue they provide moving to the suburbs, leaving the cities with many responsibilities and fewer resources.

As pointed out by Lawrence Thompson, Charleston`s downtown development director, much of that suburban development was effectively subsidized by the federal government.

``Highway and sewer grants, mortgage interest deductions, all these are examples of what the federal government has done to take people out of the cities,`` Thompson said.

What UDAG does, Thompson said, is help the cities hold some of the resources they have, and perhaps even attract a few back from the suburbs.

King Street here is a good example. Once Charleston`s commercial main street, it now is sprinkled with abandoned stores and is in obvious danger of being overtaken by urban decay.

Enter Charleston Place. The hope is that the $89 million project ($14.1 million in UDAG money) will inspire more shoppers, hence more prosperous shops downtown.

``We think it will eliminate the possibility of another regional mall,``

Thompson said. In short, the project is a pre-emptive strike against another suburban shopping mall.